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06

Three-quarters of pension schemes 'have outsourced administration'

Open-access content Wednesday 12th June 2013 — updated 5.13pm, Wednesday 29th April 2020

An increasing number of UK private sector pension schemes are outsourcing their administration in a bid to save costs and deal with increased regulatory requirements, a survey published by Aon Hewitt has found.

According to the consultancy's 2013 Benefits administration survey, 75% of schemes had outsourced their pensions administration this year, compared to 69% in 2012. The survey involved 361 respondents with a combined £97bn of assets and over two million employees.

Colin Hamilton, commercial director for benefits administration at Aon Hewitt, said: 'While the survey highlights that the main driver behind the decision to outsource continues to be cost, our experience tells us that the decision to outsource is rarely based on cost alone. 

'There are a number of other factors that are driving this rising demand. Scheme administrators are facing an increasing workload driven by legislative changes, such as auto-enrolment, and meeting member expectations around service quality, engagement and online functionality, while companies try to control costs and reduce risks. For many in-house administration teams, outsourcing is providing a valuable solution to managing these challenges.'

Aon Hewitt linked the shift to outsourcing with the rapid closure of defined benefit pension schemes. Nearly half of the schemes surveyed were closed to new members and to future accrual, and firms are increasing outsourcing the tasks associated with these schemes while focusing their in-house teams on current employers in defined contribution schemes.

The firm also linked the trend to the widespread increase in scheme de-risking, which requires a considerable amount of administrate activity such as data cleansing.

Hamilton added: 'Around 25% of respondents - often some of the largest - still retain in-house administration and satisfaction among them is still high. It remains to be seen whether additional legislative change will act as a catalyst for further outsourcing, as increased strain is placed on finite resources. Even those committed to in-house provision may seek external support with managing activity peaks, large projects or finding efficiencies.'

Schemes should consistently review their systems, processes and data to take advantage of any opportunities to introduce efficiencies and improve member satisfaction, he added.

This article appeared in our June 2013 issue of The Actuary.
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